Major hint tax cuts are on the way
THE Morrison Government has revealed Australians may be in for some election sweeteners after a major boost to the Budget.
The mid-year economic and fiscal outlook released today showed the Budget was expected to reach a surplus of $4.1 billion in 2019/20 - almost double what was expected and the first one since the last Howard Government budget in 2007/08.
As Deloitte Access Economics' Chris Richardson said on Sky News, the announcement shows Australia's "decade of deficits" was finally drawing to a close.
However, much of the attention was focused on a large amount of money left unaccounted for and which some believe will be used for tax cuts and other election promises ahead of the election next year.
There is $9.2 billion allocated to "decisions taken not yet announced", sparking speculation it will be used as an election war chest for the Coalition.
When asked whether there would be an announcement about tax cuts over the summer, Treasurer Josh Frydenberg would only say the government was committed to "targeted spending and lower jobs".
"We're not going to make any announcements today," Mr Frydenberg said. "What we are saying is that we will approach all these issues in a carefully, considered, methodical way - that is why today's result, today's Budget update numbers are the best for Australia in over a decade."
Finance Minister Mathias Cormann said, "It is no secret we are committed to lower taxes as part of our plan to strengthen the economy," and also pointed out there would be another Budget as well as a pre-election economic and fiscal outlook before the election.
Despite the non-committal answers, Mr Richardson said tax cuts were the "most likely thing".
"You have a government, it has money, there's a federal election coming, chances are it's going to do something," he told Sky News.
Mr Richardson said the $9.2 billion wouldn't deliver a significant tax cut but it was possible the government could find more money.
While the government was eager to claim credit for the positive result, much of the $8.3 billion jump in revenue since the May budget has come from increased company tax thanks to demand for iron ore and coal.
It wasn't all good news. There was also a negative change to wages growth, which was revised down despite a strong jobs market.
MYEFO pointed to an annual wage price index of 2.5 per cent, down from 2.75 per cent in the May budget. As well, the 3.25 per cent figure set out in the budget for 2019/20 has been revised down to 3 per cent.
However, Treasurer Josh Frydenberg was upbeat about growth.
"Year-ended wage growth is expected to rise from 2.5 per cent in 2018/19 to 3 per cent in 2019/20," he told reporters in Canberra.
As well, growth in the wage price index picked up to 2.3 per cent through the year to the September quarter, its strongest outcome in three years, he noted.
"Anecdotal evidence from Treasury's business liaison program points to skills shortages and wage pressures in some sectors of the economy, consistent with a tightening labour market," he said.
Mr Frydenberg said other advanced economies were seeing a similar effect, with the response of wages to improving labour market conditions slower and more muted than in past cycles.
"The United States, Canada and New Zealand have also experienced subdued wage growth in an environment of low unemployment and solid GDP growth," the budget update papers said.
The government also used today's result to sharpen its attack on Labor saying the party was promising $200 billion of higher taxes.
"It doesn't matter what the question is, Labor's answer is higher taxes - higher taxes on your income, higher taxes on your business, higher taxes on your housing," Mr Frydenberg said.
He noted new Ipsos poll results today that showed 44 per cent were against Labor's plans to pull back negative gearing.
Mr Frydenberg said Labor would also deliver higher taxes on people's electricity bills and on their retirement.
"This is what Labor is promising, and that will hurt the workers of Australia," he said.